Data show German economy stalling

The German economy expanded faster than any other Group of 7 nation last year, official data showed Wednesday, but the stress of the euro crisis and a slowing global economy appear to be already weighing on output.

Germany expanded by 3 per cent last year from 2010, the Federal Statistical Office said in Wiesbaden. It noted, however, that the growth came mostly in the first half of 2011, and estimated that the economy actually contracted by about 0.25 per cent in the fourth quarter from the prior three months.

Some economists now predict another contraction for Germany in the first three months of 2012, which would meet the usual definition of a recession as two consecutive quarterly declines in output.

Still, the 2011 figure was above the next-fastest growing G-7 economy, Canada, at “a little over 2 per cent,” and the United States, with 2011 growth of “1.7 per cent or a little more,” according to Ralph Solveen, an economist at Commerzbank in Frankfurt.

And investors fleeing the euro crisis continue to seek refuge in German assets, which are considered the safest in the euro zone. On Wednesday, the German Finance Agency said it had allotted €3.2 billion, or $4.1 billion, of five-year bonds priced to yield 0.9 per cent — the first time it has ever sold securities of that maturity for less than 1 per cent.

The agency received orders for nearly €9 billion worth of bonds, for a so-called bid-to-cover ratio of 2.8.

The strong demand came despite the signs of an economic slowdown.

Christian Schulz, an economist with Berenburg Bank in London, noted in a research note that 2012 will be “very different” for the German economy as the sovereign debt crisis drags on.

“For the rest of the year, uncertainty is unusually high,” he added. “If the euro crisis does not get worse or is finally brought under control after another wave in early 2012, the German economy can rebound nicely from the summer onwards.”

The most likely scenario is that the economy will limp along with 0.4 per cent annual growth in 2012, he said. But in the event of a full-blow euro crisis, “Germany would enter a major recession.”

Mr. Solveen said German exporters faced weaker demand as the world economy cools and austerity measures in Europe to address the euro crisis led to reduced orders from neighboring countries. Fears of a euro break-up will weigh on German confidence, he added.

The statistics agency noted that “the catching-up process of the German economy continued during the second year after the economic crisis,” with G.D.P. finally exceeding its pre-crisis level. The German economy contracted by 5.1 per cent in 2009, its worst showing in the post-World War II era. It grew 3.7 per cent in 2010.

Household spending grew last year by 1.5 per cent over 2010, while investment rose sharply, with spending on machinery and equipment adding 8.3 per cent and construction adding 5.4 per cent.

Exports rose by 8.2 per cent over 2010, while imports rose by 7.2 per cent.

Employment rose in 2011 to an all-time record, with an average of 41.1 million people at work — up 541,000 from a year earlier. The country’s jobless rate fell to 6.8 per cent in December from 6.9 per cent in November, the Federal Labor Office said earlier this month.

Mr. Solveen noted that Germany’s fiscal position showed a surprisingly big improvement, with the deficit at 1 per cent of G.D.P. That, the agency said, was “far below the 3 per cent reference value set by the Maastricht Treaty.”

The continuing strength in Germany contrasts with Europe’s so-called “peripheral” members, which are desperately cutting government spending and raising taxes in an effort to bring down deficits and debt levels. Economic weakness and higher interest rates are complicating their task.

In Spain, for example, where the unemployment rate is over 20 per cent, the National Statistics Institute said Wednesday that industrial production plunged 7 per cent in November from a year earlier.